Schools pay big to buy new sites
To get the land it needs to build new schools, Hillsborough has been willing to pay a premium to brokers that other districts don't.
By MELANIE AVE and JEFF TESTERMAN
Published March 12, 2006
TAMPA - The Hillsborough County School District, growing by 5,400 students a year, needs land. Lots of land.
But when it comes to buying property to build new schools, the district often overpays. School officials also pay hundreds of thousands of dollars in unnecessary commissions to real estate brokers. And in the end, the district still ends up with properties ill-suited for schools.
A St. Petersburg Times investigation of hundreds of district land purchases shows that a school system that spends $11-million a year buying real estate doesn't always get taxpayers the best deals:
-- A real estate broker who was supposed to be working for the school district convinced two landowners to sell their property to him for $25,000. The property was transferred to two land trusts, then "flipped" to the school district for $123,800 - a mark-up of more than 300 percent.
-- The school district paid $1.1-million to buy an elementary and middle school site that turned out to have a swamp. Now it is spending an additional $1.2-million to fill the swampland.
-- One district employee escaped paying an expensive penalty on her mortgage when school officials chose not to enforce a $900,000 agreement to buy her property. School officials instead condemned the property, and ended up paying $157,000 more than the original agreement and 30 percent more than the land's initial appraised value.
-- With the help of one of its brokers, the school district bought an elementary school site for $1.7-million - $600,000 more than it sold for three years earlier. The property sits within a mile of 29 registered sex offenders, many of them pedophiles.
-- The district paid nearly $100,000 more than the appraised value for properties controlled by Matthew B. Cox, who authorities say masterminded a multimillion-dollar mortgage fraud scheme, and Chester B. Luney, a nonprofit boss at the center of a bribery scandal. Cox is now a fugitive. Luney is in federal prison.
-- State law requires school boards to have a super majority vote when approving the purchase of property for more than its average appraised value. The Hillsborough School Board routinely agrees to pay more than the average - with no public discussion.
Hillsborough's methods are unusual when compared to those in other large Florida school districts, including fast-growing Palm Beach, Orange and Pasco counties. While a few use brokers to scout school sites, none offers commissions based on the sale price for fear it could drive up costs.
Most districts insist on handling the work themselves.
But in Hillsborough, school officials are proud of their streamlined real estate department, which consists of just two employees, neither with significant land-buying experience.
Said School Board member Jack Lamb: "We're getting our money's worth."
* * *
School district policy is to advertise for any professional service worth more than $25,000 so interested companies can compete for the work. Yet the district has paid hundreds of thousands of dollars to four real estate brokers without seeking any bids. District officials aren't even sure how much they have paid the brokers.
School administrators also know little about who they are, having hired them years ago to hunt for land and negotiate prices without requiring background checks or a written contract. Brokers have worked for both the seller and the district on various deals. And in one case, the district paid a broker thousands of dollars to compile a list of properties available for back taxes, a task accomplished by anyone with Internet access and a basic knowledge of government Web sites.
The district also has outsourced much of its school planning responsibilities. Since 1998, school officials have paid the Naples-based WilsonMiller Inc. more than $2.2-million for work that was never advertised to other firms.
At least twice, WilsonMiller has worked for the school district as a planner and for a private client trying to sell the district land. Both times, the district paid WilsonMiller's private clients thousands more than the appraised value of the property.
Superintendent MaryEllen Elia, who ran the district's facilities department before taking office last summer, says using outside real estate professionals is a better deal for taxpayers than hiring more full-time staff.
She said brokers help the district in a hot real estate market where oftentimes, "sellers aren't dying to sell us land."
"I think when you need a person, you hire what you need," Elia said. "And then when you don't need them, you don't have them. They are not part of your staff."
No one seems to know exactly when the school district started using private brokers. But the system was well in place by the late 1990s, when it was clear the nation's ninth-largest school district was riding an enrollment boom with no end in sight.
The student population, already at 188,000, is growing fast enough to fill five new schools every year. By 2010, the district expects enrollment to reach 224,000.
School officials spend millions every year trying to keep up.
They rely primarily on four state-licensed brokers, each of whom typically works in a specific area of the county. They help find property and negotiate prices, often without much oversight. They are usually paid a 3 percent commission. Because there was no bidding or formal contract for their services, school officials know little about their backgrounds and business practices.
The Times found issues with three of the four brokers, including arrest records, multiple bankruptcy filings, foreclosure proceedings and tax liens. Only one of the district's regular brokers, J. Leland Byrd of Kilgore Real Estate, has a record clear of criminal, legal or financial problems.
Real estate professionals say governments can't protect taxpayer interests without seeking bids for the work and keeping written contracts.
"Who's representing who here?" asked Guy Sanchez, a licensed Realtor and former member of the Florida Real Estate Commission when asked about Hillsborough's methods."There's got to be some sort of fiduciary relationship. If you don't have a contract, you don't see it."
Kilgore's Byrd says he gets district business because of his firm's industriousness.
"I hear a new school is needed and I go out and start looking for locations," Byrd said. "Once, there were 11 properties submitted and I submitted 10 of them. I just work harder."
Recently, he tried to show his gratitude for the work by sending a $100 gift certificate for Bern's Steak House to the school district's director of acquisitions. It was sent back.
"It wasn't a bribe, I was just showing my appreciation," Byrd said. "They're honest people over there."
* * *
In the real estate business, it's known as "flipping" - buying property at a low price, marking it up and making a quick resale.
A broker helping to acquire land for the school district and two land trusts used the practice to make a profit while dozens of properties were being assembled for Middleton High, a $46-million school that opened in East Tampa in 2002.
The Times discovered the properties flipped by Fred Edmister and the land trusts during an examination of more than 100 property transfers for Middleton. Edmister is one of the district's four real estate brokers.
Records show Edmister, together with the land trusts, assembled five parcels at a price of $28,165, then sold them to the school district for $123,800.
The beneficiaries of the land trust remain a mystery. The two trusts, the 2606 East Caracus Land Trust and the 2610 East Caracus Land Trust, are not recorded in public records.
Lawrence E. Fuentes, a Tampa real estate attorney, acted as trustee for the two trusts. But Fuentes said he is legally restrained from identifying their beneficiaries.
"That's why people set up trusts like that, for the confidentiality," Fuentes said.
The land trusts made $95,635 on the land flipping, and no one at the school district appears to have known about any of it until informed by the Times.
"I would be appalled if that happened," Elia said.
School Board member Candy Olson, after hearing about the land flips, said she wants to look into the district's practices in more detail.
"We've been real proud about the fact we are very lean," she said. "I am concerned sometimes that we're so lean we don't pay as much attention to things like this as we should."
The landowners who were paid low-ball prices for their property say they didn't know what was happening until it was too late.
"We feel like we got swindled," said Carol Willoughby, who, with her husband Dewayne, sold two vacant parcels on East Caracus Street to a land trust through Edmister.
Sexton Valenti Sr., whose produce company owned three parcels of land on East Caracus Street bought by Edmister and a second land trust, said: "We get paid hardly anything, and then when (the land trust) sells for a big price to the School Board, we end up paying for it indirectly. It's just not right."
Willoughby said Edmister came out to her house and said he was buying land in the area and was "involved in low-income housing."
Edmister offered $20,000 for the Willoughbys' two vacant properties, even though the parcels were then assessed for tax purposes at $53,735. The Willoughbys took the offer. Edmister paid $500 down and prepared a contract listing "A. Fred Edmister or assigns" as the buyer.
Edmister then wrote a letter to school officials saying he had a listing on the properties and wanted to sell them for $54,000 "as soon as possible."
It was not until a month after signing the contract, when the Willoughbys attended the closing, that they realized Edmister had assigned his contract rights to someone else. And it was not until after the closing, when the couple received a letter from the School Board thanking them for selling, that the Willoughbys came to believe that they might have gotten a better deal for their property.
"We contacted a couple of attorneys and were going to try to sue," said Dewayne Willoughby. "But we were told there was nothing we could do, that we should have been more careful."
Sexton Valenti Sr. and his son, Sexton Valenti Jr., tell a similar story. The Valentis were closing down the family produce business and figured the property they owned on East Caracus Street was expendable. They knew nothing about the school district's plans to build a new school there.
Until they were interviewed by a Times reporter, the Valentis did not realize the district had paid $70,000 for three parcels that had cost the second land trust just $8,165.
Edmister was paid a sales commission of $9,200 on the sale to the district of the Willoughby and Valenti properties. The district paid $4,200. The land trusts paid the rest.
Fuentes, the attorney acting as trustee for the land trusts, said he was unaware of Edmister's actions to acquire the Willoughby and Valenti property at the low prices. Fuentes said he was not a beneficiary of the land trusts and received none of the profits in the sale of the land to the school district.
Fuentes' firm, Fuentes and Kreischer Title Co., was paid $1,234 for title services in connection with the sales to the school district. Fuentes said his role as trustee to the land trusts was a service provided on behalf of the title company.
Edmister did not respond to requests from the Times to discuss the property transfers. He also did not respond to other questions about his activities as a broker working for the school district.
Edmister has continued to receive sales commissions without any bidding, written contract or background check. But a review of records by the Times shows that Edmister was sued by the U.S. Department of Labor for failing to obtain workers' compensation insurance for employees at his realty business. The IRS filed tax liens against him and later went to court seeking permission to serve a tax levy on his business. He was fined for violating standards of the state's Department of Business and Professional Regulation.
After the tax problems and a pair of bankruptcy filings, Edmister's National Realty Associates was dissolved in 1994. Yet Edmister has continued to request that his commission checks from the school district be paid to the unofficial company, and the district has consistently complied.
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Hillsborough isn't the only Florida school district desperate to acquire land for new schools. Pasco is adding about 2,500 new students annually and plans to build 23 schools over the next five years.
Last year, Pasco school officials decided to advertise for brokers.
But unlike Hillsborough, the district required references, qualifications and prior experience before it signed agreements with two realty firms. If those companies alert the district to unadvertised land that is eventually purchased, they can earn a $10,000 finder's fee.
The Pasco County School District will not pay a commission.
"They don't get much out of it," said Pasco assistant superintendent Ray Gadd.
Hillsborough school officials insist commissions are a good deal for taxpayers, noting that the 3 percent paid by the district is only half the industry standard of 6 percent.
Plus, Elia said, brokers can't make a formal offer on behalf of the district without approval from administrators. Property estimates, done by certified appraisers, help the district determine how much to pay for land.
"We don't just say "oh, we trust you,' " said Elia, who acknowledged she does not know everything said between the brokers and sellers.
But while Hillsborough's brokers can help seal acquisitions, their efforts also can drive up costs.
Just ask Leigh Ann Strauss, who sold an 18-acre horse farm to the school district that is the site for Schmidt Elementary School in Brandon.
Strauss' property, dotted by 200-year-old grand oaks, had been in her family for five generations. Strauss expected to die there, as her sister had. She was broken-hearted when her attorney told her she would lose in a school condemnation hearing.
Strauss said brokers working for the school district helped get her a premium price from school officials and won concessions to preserve the unique character of the property.
"The brokers were pivotal in getting the school board up to my price," she said.
The final price was $1.44-million, nearly 17 percent higher then the school district's appraisal of $1.2-million. Strauss paid a commission of $27,707 to the brokers - Kilgore Real Estate's Byrd and his daughter, Lesley Grygiel.
The school district paid Kilgore an additional commission of $43,220 on top of the purchase price.
That wouldn't happen in Broward County, where the district contracts with three brokerage firms but does most of its real estate work in-house.
If brokers expect a commission, they must negotiate with the sellers, said Michael Garretson, Broward's deputy superintendent for facilities and construction management.
"We don't pay them anything," he said.
Neither does Hillsborough County government or the Hillsborough Tax Collector's Office.
"We don't pay commission to anyone when we acquire property," said Hillsborough Tax Collector Doug Belden. "It's not right to use the taxpayers' money to do that. That way, you also avoid any impropriety with a broker."
Not everyone thinks using brokers is a bad idea.
Diane Kramer, deputy director of school facilities in Orange County, said that although her staff handles acquisitions, she sees the benefit of brokers.
"Sometimes it's better to have somebody on the outside contact an owner because if they hear it's the School Board, they won't negotiate with you," Kramer said. "To do one thing for every situation is not the right thing.' '
Jack Davis, who served as the district's facilities chief before Elia, said brokers were encouraged to act almost as secret agents to help keep costs low.
"We ask them to make initial contacts without identifying the board as the customer," Davis said.
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Not all of Hillsborough's land acquisition problems can be attributed to brokers. School officials have managed several mishaps on their own.
In 2000, one month after Ursula Martin became a secretary at Tampa's Benito Middle School, she agreed to sell a 21-unit apartment complex to the district - her new employer - for $900,000. That was $80,000 more than the initial appraised value.
The property was one of about 100 pieces the school district needed for Muller Elementary and the Bowers-Whitley Career Center off 22nd Street.
Though Martin had agreed to sell the complex her land trust owned, the school district still condemned her property three years later. The new price tag of $1.06-million was 18 percent more than the initial agreement between Martin and school officials.
And by condemning the land instead of buying it, the district allowed Martin to escape a $201,266 prepayment penalty she owed her mortgage company.
In court records, then-school district property manager Jill Lemons said the district's price went up because the initial appraisals had grown stale and Martin refused to close on the sale.
Officials with Wachovia, Lennar and LaSalle Bank accused the school district of colluding with Martin so she could avoid the mortgage penalty.
"The School Board misused its eminent domain power for the benefit of a private individual ... at the expense of the public and taxpayers," mortgage company attorney Clifford Steele wrote in circuit court documents.
Martin said in court records she did not know the property would be condemned until informed by her attorney, Greg Orcutt.
Orcutt works for Bricklemyer, Smolker & Bolves, the law firm founded by Keith Bricklemyer, husband of School Board chair Carolyn Bricklemyer. The firm received $28,000 for its work representing Martin's land trust.
Orcutt, reached by phone last week, said the district had to condemn the land because Martin refused to sell if she was going to be forced to pay a mortgage penalty.
"As far as I'm concerned it was the evil bankers and lawyers from Miami who were the problem," Orcutt said. "That bank put everybody between a rock and a hard place."
A judge eventually decided the condemnation meant the mortgage company had no right to the penalty. The real estate brokers involved in the deal, Bob O'Shaughnessy and Willie R. Mason, received a 3 percent commission, or $31,000.
And then there is the Live Oak deal, where the district found itself on the short end of a classic Florida ruse: swampland for sale.
The property in question is an 18-acre parcel needed for an elementary and middle school at the edge of Live Oak, a new development just south of the Pasco County line off Bruce B. Downs Boulevard.
The School Board agreed to buy it in December 2004. The price: $1.1-million, or about $61,000 an acre. That was $17,000 more per acre than comparable property sales at the time.
School officials were convinced they were getting a great deal. Buying the Live Oak property allowed them to secure enough land for two schools instead of one. And it was located next to a county park filled with playfields students could use.
But three acres of the property - exactly where Nancy Bartels Middle School was to be built - was inundated with water.
"How did we get into a situation where we're stuck with swampland?" board member Jennifer Faliero asked after the property purchase.
School facilities chief Cathy Valdes said the district had no leverage to force a better location from the seller, Live Oak School Park LLC, so it took the land it could get out of a desperate need for property in fast-growing New Tampa.
"If you're going to build schools there," Valdes said, "you're going to build on swamps."
But school officials apparently were in the dark about how much wetlands were on the property. Two appraisals that relied on information supplied by the developer only noted 1.7-acres of wetlands. Another acre of wetlands was never mentioned in district planning documents, but shows up clearly on county wetland records, which were available for review.
District officials are unable to say why they didn't know about all the wetlands, or why they didn't require the seller to pay for their removal.
Now the board is paying at least $1.2-million to make the property high and dry enough for the middle school.
School officials still consider the deal appropriate.
"We're not saying it was a great deal," Valdes said. "It was a deal. Right now we have a wonderful view, because we're looking at it in hindsight.
"Hindsight," she said, "is 20-20."
-- Staff writer Michael Van Sickler and Times researcher Cathy Wos contributed to this report.
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